We're going in the right direction

Feb 2 2010 by Iain Laing, The Journal

AS we enter February there is some optimism on the horizon for the manufacturing and export businesses of the North East.

Small and medium-sized manufacturers are starting to benefit from the relative weakness of sterling, with overseas orders stabilising after seven quarters of decline, according to the CBI. Manufacturing production also steadied, but is expected to fall in the next quarter as overall demand remains weak.

Of the 418 firms surveyed for the CBI’s quarterly SME Trends Survey, 27% said the volume of export orders rose in the three months to January, while 25% said it fell. The resulting balance of +2% is the strongest figure since January 2008 (+12%).

Export orders are expected to grow more strongly in the next quarter (a balance of +8%), and firms are the most optimistic about export prospects for the year ahead since October 1995 (+15%).

Domestic orders continued to decline, but at the slowest rate since April 2008 (-10%).

Manufacturing production stabilised in the quarter, thanks in part to the modest improvement in exports.

Smaller manufacturers have been pinning their hopes on the relative weakness of sterling to boost overseas orders and offset weak demand at home. It is therefore encouraging that exports are now stabilising.

Small and medium-sized manufacturers are also expecting overseas orders to grow in the coming months, and are the most upbeat about export prospects for 15 years.

However, with the economy only just edging out of recession, conditions will still feel pretty challenging for smaller firms. Domestic orders are likely to remain depressed, and firms are expecting output to fall in the next three months.

Optimism about general business prospects was broadly unchanged (+2%), compared to +9% in the previous quarter.

Close to 10% of small and medium-sized manufacturers are reporting that credit or finance constraints are likely to limit output or export orders in the next quarter.

Smaller manufacturers are continuing to reduce their headcount (a balance of -8%), albeit at a slightly weaker rate than the previous quarter (-12%).

Firms are continuing to de-stock, but at a slower rate, and 66% of firms are working below capacity. Still a long way to go but at least we are travelling in the right direction.

Sarah Green is regional director of CBI North East